Marugame Seimen does well, but Hanamaru Udon stalls……What is the “difference” between the two chains?

Recently, there have been a number of reports of nuisances at conveyor-belt sushi chains. Even so, major restaurant chains have been plagued by the COVID-19 crisis for the past several years and have been struggling with countermeasures. While consumers are finally returning to their normal eating-out activities, nuisances are now frequently reported in various parts of Japan. The restaurant industry is in tears.

The restaurant industry is in tears, but the damage varies considerably depending on the company or chain. For example, Marugame Seimen and Hanamaru Udon are both self-service udon noodle chains, but they are clearly different from each other.

The data below are the results by segment for Marugame Seimen and Hanamaru Udon, as announced by Tridor Holdings, Inc. and Yoshinoya Holdings Co. In addition to sales and the number of stores for the most recent six months, the data for the same period in FY2020 before the COVID-19 crisis is shown (in parentheses). Marugame Seimen’s sales increased 4.8% despite the fact that the number of stores has hardly changed. Hanamaru Udon saw a large drop in both sales and the number of stores.

Hanamaru Udon’s main location is in the downtown area in front of the station, where the COVID-19 crisis caused a large decrease in the number of people in the flow of traffic, and many stores were located in food courts, where the absolute number of users also decreased sharply. The fact that the self-serve udon noodle business itself was not suitable for With Corona was also cited as a factor in the decline in business performance.

McDonald’s and other fast-food chains that have increased their business in the COVID-19 crisis have in common that they are strong in takeout and delivery services. However, most soba and udon FFS chains have not focused on takeout and delivery, partly because the quality of noodles such as soba and udon deteriorates quickly over time. As a result, although not to the same extent as family restaurants and izakaya (Japanese-style pubs), the self-serve udon chains were forced to significantly reduce the number of customers due to the COVID-19 crisis.

Looking at same-store sales in April and May 2020, when the first state of emergency was declared, while most of the FFS chains were above the 80% y/y line, Marugame Seimen also saw its numbers drop to 50.3% y/y in April and 63.6% y/y in May.

How was Marugame Seimen able to improve its performance under the COVID-19 crisis? There are three key factors.

One is a quick response to takeout needs. At first, Marugame Seimen did not place much emphasis on takeout, offering only tempura as a takeout item. However, in May 2020, the company expanded its takeout lineup to include udon noodles and rice bowls. As a result, takeout sales have steadily increased, and the percentage of takeout sales, which was less than 3%, has risen to 13%.

In April 2021, the company will introduce “udon bento. The udon bento is a takeout-only product that includes udon, tempura, and side dishes in a single set, but it was a big hit, selling 22 million servings in one year.

The establishment of “udon bento direct sales outlets” has also contributed greatly to the increase in sales. Udon bento shops are dedicated take-out sales outlets attached to stores, and Marugame Seimen has conducted a series of experiments by setting up various types of direct sales outlets for udon bento.

Marugame Seimen has installed various types of direct udon bento sales counters and conducted a series of demonstration tests. The company plans to increase the number of udon lunch box stores to 100 by the end of this fiscal year.

The effect of installing take-out sales windows is unexpectedly large. Not only is it convenient for customers to order takeout items without having to enter a store crowded with eat-in customers, but the very existence of these takeout sales counters also serves as PR to encourage the use of takeout.

A simple announcement such as “Take-out is now available” is unlikely to leave a lasting impression on customers. In addition, the takeout system usually differs slightly from restaurant to restaurant, making it difficult for customers to understand how to order, which often discourages customers from using takeout. The take-out counter eliminates such concerns, and can even motivate customers to “try it out” and buy it.

Incidentally, there have been successful cases in the past where take-out sales counters have been set up. This is the case of Katsuya, a dumpling chain operated by Arkland Service Holdings Co.

Katsuya is one of the winning chains that has significantly increased its sales under the COVID-19 crisis. Before the installation of katsuben, takeout sales accounted for about 20% of total sales, but at stores with katsuben, the ratio rose to 40%. Currently, the number of stores with katsuben exceeds 250.

While increasing takeout sales, Marugame Seimen has not neglected to strengthen its eat-in shops to attract more customers. This is the second reason for Marugame Seimen’s sales growth.

Marugame Seimen’s strategy is characterized by its emphasis on the value of the experience. The former catchphrase of Yoshinoya, “fast, inexpensive, and delicious,” is a common characteristic of FFS, but Marugame Seimen has devised various ways to add the value of “fun” to its catchphrase.

This policy is strongly reflected in the store design. Marugame’s kitchens are designed to create a live and sizzling atmosphere (freshness), with a boiling pot right in front of the entrance, and the COVID-19 crisis has also seen a number of improvements.

For example, in April 2022, Marugame Seimen introduced a new menu item, grilled meat udon (regular) for 670 yen. The new kitchen is equipped with an induction stove near the cash register, and the ingredients for the meat udon are cooked in front of the customers.

In addition, the height of the boiling pot has been changed to make it easier to see how the noodles are being boiled, and the udon dough aging room has been installed in front of the kitchen to better convey the concept of in-store noodle production. 100 stores have been renovated in one year to refine the value of the experience.

The increase in experiential value has led to a recovery in the number of eat-in customers, and this has also become an advantage in the rush to raise prices in 2022.

Marugame Seimen implemented three price revisions in April 2009, January 2010, and October 2010. The bottom price of 290 yen for kama-age udon (regular) remained unchanged, but the price of kake udon (regular) rose from 300 yen to 360 yen over the three price revisions. When prices are raised, it is usual in the restaurant business for the price per customer to go up and the number of customers to go down. However, the number of customers at Marugame Seimen’s existing stores dropped to 98.7% of the previous year’s level in November 2010, immediately after the third price hike, but recovered to 103% in December 2010.

Consumers are sensitive to price hikes when they pursue only the product value of fast, cheap, and tasty, but Marugame Seimen has been refining the value of the experience along with the product value. When I visit the restaurant at lunchtime, I see not only office workers but also many men and women in their teens. This is proof that the younger generation is appreciating the premium over the unit price.

The third key point is that Marugame Seimen has been using suburban roadside areas as its main locations. The COVID-19 crisis has caused a shift in the flow of people from the city center to the suburbs, and the suburban roadside is becoming more and more active in the restaurant market. In this regard, Marugame Seimen’s location strategy has been working to its advantage, and the company has prepared a secret strategy for opening new stores in the future.

Marugame Seimen has been holding back store openings due to the COVID-19 crisis, but during that time it has examined and redefined the chain’s trade area setting. The company had been opening new stores at such a furious pace that there was no time to verify the trade area settings, but when the number of new stores was reduced and the property development team was free, the trade areas of each store were mapped based on information from Marugame Seimen’s app members. It was then discovered that there was more “in-house competition” than expected.

Based on this data, Marugame Seimen is already developing stores with new trade area settings. Armed with the strengths of enhanced takeout, premium in-store dining, and improved location strategies, Marugame Seimen has “room to grow” in the future. It should also have the agility to take early action to counter the nuisance behavior of customers, as mentioned at the beginning of this report.